Prepaid Mortgage – are you smart or dumb ?

The old schoolers and big financial planners always promote to pre pay certain amount of mortgage principal every month to save on interest amount. These all look fantastic savings , below is one example.

350K loan @ 4.5% for 30 years

Every month additional payment of $500

Saves 10 years and 9 months

Dollar savings of $115,374

You will be delighted by saving 115K , but this would be the dumbest decision.

This does not increase your net worth , prepayment you are losing money interest tax savings , putting all the money in one nest, you cannot take out the money until you sell the home ( it has own risk of market fluctuations ).

Think on the other side or like true millennial or generation X.

There are better ways to double or 4 times your savings on this and increase your net worth.

Below is the smart minds move :

Every month you contribute , $500

In the same 19 years with 7% ( all season weather resistant safe portfolio ) total returns with compounding is $237,125